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Monday, 13 January 2014

TPPA negotiations hot up in early 2014

Due to the United States political calendar and congressional politics, the TPPA
negotiations will heat up the first few months of the new year.

ONE of the major developments in the new year will be the
negotiations and in fact the fate of the Trans Pacific Partnership
Agreement (TPPA), which has stirred a lot of interest and controversy
not only in Malaysia but also in the United States, whose government is
its prime mover.

The first half of 2014 will be decisive because the US will hold
mid-term congressional elections in November, and that nation’s
attention will focus on that after mid-year.

Since free trade agreements are so controversial and in fact
unpopular among the public in that country, the TPPA and other FTAs will
be hard for the US president and his administration to champion near
the election period.

This may explain why the US is in such a hurry to finish the TPPA
negotiations as soon as possible. It had placed a deadline of end of
2013, but that has passed without success.
Indeed, the ministerial meeting in Singapore in the first half of December revealed many outstanding differences.

So, the negotiations will become even more intense in the next few months, with a possible ministerial meeting in February.

Malaysia is one of the significant countries that have raised several concerns about the proposals by the US.

Prime Minister Datuk Seri Najib Tun Razak himself, at a meeting in
Bali last October, highlighted government procurement, state owned
enterprises, investor-state dispute system and intellectual property as
some of the issues that may infringe on sovereignty, implying that there
should be careful consideration and caution during negotiations.

The US Trade Representative Michael Froman visited Malaysia a number
of times to meet with some ministers and parliamentarians. He
reportedly assured them of the United States’ understanding of
Malaysia’s concerns, which he implied would be taken into account.

Malaysians are thus waiting to see how much flexibility will be
given to accommodate the concerns of the public and the Government.

For instance, Malaysia formally proposed a comprehensive “carve-out”
(exclusion from disciplines in the TPPA chapters) for tobacco control
measures, a move that was advocated by health groups and the Health
Ministry, and which has won warm congratulations from the public and
media around the world, including in a New York Times editorial.

According to media reports, Malaysia has also opposed proposals for
tight intellectual property rules that for instance extend the present
terms for patents for medicines and asked for high thresholds for
government procurement, and exemption for its bumiputra policies, while
also challenging the proposed disciplines on state owned enterprises and
the investor-state dispute system.

On goods market access, Malaysia will also find difficulties with
the proposed ban on export duties. Recently the association of palm oil
refining companies warned that their operations would be threatened if
the TPPA forces the country to abolish its long-standing export tax on
crude palm oil.

A ban would also cause the Government to lose around RM2bil annually
in revenue, which would be a serious blow to efforts to reduce the
budget deficit.

The question is whether Malaysia’s demands will be met. Even if
compromise or flexibility is offered, it is crucial to examine how
genuine or adequate they are. Often, the only “flexibility” is a longer
period granted to implement the specific rule in question. That is not
really much use.

Even if an exemption is given, it may be limited or useless. For
example, in an early version of the investment chapter, available on the
Internet, there is a clause that nothing in the chapter prevents the
countries from undertaking health and environmental policies. But it
also says provided those policies are consistent with the chapter,
thereby negating the apparent space provided for exclusion.

Thus the devil is really in the details, as the saying goes. And the
details have to be carefully scrutinised, because it is an old
negotiating tactic to show a spirit of understanding and compromise
politically but remain steadfast and uncompromising in the legal texts,
and it is the latter that counts.

Another key point is that the US negotiators and government have
little room to provide compromises, even if they want to. That is
because it is the congress that has the real power over trade matters,
including the TPPA.

Last week, some members of Congress introduced a Bill to provide the
US President with fast-track authority, which means that a trade
agreement like the TPPA can only be adopted or rejected by congress, but
cannot be amended by it.

Without this fast-track authority, there is no confidence among
other countries that what the US negotiators agree to or sign will be
agreed to by congress, which can reject certain parts of the TPPA and
demand changes.

As a condition for giving the fast-track authority, advocates are asking the US government to take a strong stand on issues.

This puts pressure on the US negotiators not to compromise, even if they wanted to.

For example, the Bill says that on state owned enterprises the US
should seek commitments that eliminate unfair competition favouring SOEs
doing commercial activity and ensure that their practices are based
solely on commercial considerations.

Government policies and the SOE practices would have to abide by eliminating discrimination and market-distorting subsidies.

The US is already proposing that SOEs cannot discriminate when they
buy and sell goods and services, and that they cannot receive any
advantages such as cheaper loans or land and business from the
government.

This would, for instance, imply SOEs being prohibited from giving preferences for bumiputra companies in their procurement.

If the definition of SOEs also include private companies in which
government agencies have a share, the net will be cast very wide.

It is however still unlikely that the proposed Bill will pass, as
many Democrats are opposed to fast track and some Republicans just don’t
want to give President Obama anything he wants.

But here’s the problem. If fast track is given with the conditions
attached, the US negotiators will have to abide by them and can’t show
required flexibilities. If there is no fast track, the proposed texts
agreed to by the US can more easily be rejected by congress.

Either way, there is only so much the negotiators can give in
response to demands made by Malaysia or other countries, and even then
the compromises can be rejected by congress.

Which goes to show how difficult FTAs are to negotiate or conclude
when the US is involved, for commerce and politics are all mixed up in
the pot.